Changing Trade Secrets | Noncompete Laws

Changing Trade Secrets | Noncompete Laws

The Changing Landscape of Trade Secrets Laws and Noncompete Laws Around the Country

[Updated generally as of February 18, 2018; updated May 6, 2018 for federal; additional (new) updates are in process as of August 4, 2018(some updates since February will be here, others will be coming shortly)]

Historically, both trade secrets laws and noncompete laws have been the product of state law. Since May 11, 2016, however, there is also been a federal private right of action for trade secrets misappropriation under the Defend Trade Secrets Act of 2016. And, if some federal legislators have their way, there will be a federal noncompete law (see below).

These laws are in a constant state of flux, both as a consequence of new judicial opinions and legislative initiatives. As such, no surprise, we have 50 variations of each (really 52, when you factor in DC and federal law), many of which are changing at any point in time.

On the noncompete side, as of now, only 3 states (California, Oklahoma, and North Dakota) prohibit employee noncompetes altogether (seeBRR’s 50-state summary chart), although that may change, as various legislatures have been considering a ban on employee noncompetes and significant other possible changes to existing laws.

Charts reflecting the differences among how each of the 50 states handle noncompetes and trade secrets are available here (noncompetes) and here (trade secrets). Note that these charts are updated as new developments arise.

Given how hard it can be to stay on top of the recent developments in each state (as well as at the federal level, not to mention international changes) and the absence of any aggregation of this information elsewhere, we have dedicated a separate page to the current status of developments in trade secrets laws and noncompete laws around the country.

While updates will continue regularly in our blog posts, this page is intended to serve as an ongoing resource for people to easily find all of the important developments in one place. Although the focus will be on the United States, important international developments will sometimes be included as well.

Actual changes in the laws – as opposed to bills being considered – and key dates and issues are indicated by bolded orange dates.

Please consider this page to be a work in progress, as the laws are ever-changing. Please check back regularly.

Federal [Trade Secrets and Noncompetes]

On the trade secrets side, the Defend Trade Secrets Act of 2016 (commonly referred to as the “DTSA”), a bill to create a federal private right of action for the protection of trade secrets, was – with some amendments, including in connection with the inevitable disclosure doctrine – reported out of the Senate Judiciary Committee at the end of January 2016. Bloomberg BNA has a terrific summary here: Senate Judiciary Committee OKs Federal Trade Secret Bill.

Testimony was taken back in December 2015, and is available here. Persons appearing to testify were: Karen Cochran, Chief Intellectual Property Counsel at E.I. DuPont de Nemours and Company, Tom Beall Vice President and Chief Intellectual Property Counsel at Corning Incorporated, James Pooley, a leading trade secrets expert, and Sharon Sandeen, Professor of Law at Hamline University School of Law. In addition, a letter was submitted in lieu of live testimony by a number of trade secrets practitioners (myself included) around the country. That letter is available here.

Also on the trade secrets (encryption) side, in the spring of 2016, the Senate Intelligence Committee had been working on a bill (the Compliance with Court Orders Act of 2016) to authorize court orders requiring companies to assist the government to gain access to encrypted data. The bill received heavy criticism and ultimately died.

The text of the analogue House bill (H.R. 5631) is available here. The two bills are largely the same, although they differ in some respects, including that the Senate version instructs the Secretary of Labor to enforce the law and provides for civil penalties, while the House bill adds that such contracts violate antitrust laws absent a showing by the employer to the contrary.

Substance of the Bill

The Senate bill, if passed, would ban the use of employee noncompetes (and potentially nonsolicitation agreements). Specifically, the bill provides, in relevant part:

No employer shall enter into, enforce, or threaten to enforce a covenant not to compete with any employee of such employer, who in any workweek is engaged in commerce or in the production of goods for commerce (or is employed in an enterprise engaged in commerce or in the production of goods for commerce).

The Senate bill adds a requirement that employers post notice of the law “in a conspicuous place on the premises . . . .”

“Covenant not to compete” is defined as follows:

[A]n agreement, entered into after the date of enactment of this Act between an employer and an employee, that restricts such employee from performing, after the employment relationship between the employer and the employee terminates, any of the following:

(A) Any work for another employer for a specified period of time.

(B) Any work in a specified geographical area.

(C) Any work for another employer that is similar to such employee’s work for the employer that is a party to such agreement.

Given that definition, an argument can be made that the ban covers not just employee noncompetition agreements, but nonsolicitation agreements as well.

As noted above, the House bill turns a violation the Act into a violation of antitrust laws. However, as also noted above, it gives an out (assuming a company is willing to take the chance that it has engaged in anticompetitive activities – which the bill says is to be presumed):

A covenant not to compete contained in an employment contract made between an employer and an employee is anticompetitive and violates the antitrust laws unless the employer establishes by a preponderance of the evidence that the covenant does not have an anticompetitive effect or that the pro-competitive effects outweigh the anticompetitive harm.

Both bills also provide employees with a private right of action — including the recovery of punitive damages and attorneys’ fees. The House bill provides as follows:

Any person who fails to comply with section 2 shall be liable to any individual in an amount equal to the sum of—

(1) any actual damages sustained by the individual as a result of the failure;

(2) such amount of punitive damages as the court may allow; and

(3) in the case of any successful action to enforce any liability under this subsection, the costs of the action together with reasonable attorney’s fees as determined by the court.

The Senate bill is similar, but expressly permits brining a civil action in the federal courts. Despite the absence of similar language in the House bill, the Senate version does not appear to create exclusive jurisdiction in the federal courts. Accordingly, the additional language changes nothing.

To date, there is no federal noncompete legislation (much less a ban). As you may recall, there were three prior bills (none of which went so far as to seek an outright ban) in 2016:

A bill entitled, the “Mobility and Opportunity for Vulnerable Employees Act” (or the “MOVE Act“), that would prohibit the use of covenants not to compete (defined in the bill) for “low-wage employees,” i.e., employees earning the greater of (subject to inflation) $15 per hour or the applicable state or local minimum wage rate or $31,200 per year, but excluding any salaried employee earning (subject to inflation) more than $5,000/month for 2 consecutive months.

A bill entitled the “Freedom for Workers to Seek Opportunity Act” (“FWSOA”). Although not having quite as catchy an acronym as the MOVE Act or the LADDER Act, FWSOA does win on creativity in that it seeks to ban the use of noncompetes for grocery store workers (only).

None of these bills passed.

Related to noncompetes, though not technically a noncompete, recent proposed legislation addresses other restrictive covenants, typically the province of the states:

State Changes

Alabama [Noncompetes]

Effective January 1, 2016, Alabama modified its existing noncompete (and nonsolicit) law in several respects. Most significantly, the new “Restrictive Covenant Act,” Ala. Code §§ 8-1-190-197, (1) establishes a presumption that a two-year noncompete is reasonable in duration and (2) permits judicial reformation (i.e., modification or rewriting) of overbroad noncompetes. (States take one of three general approaches to overly-broad noncompetes: reformation (in which the court essentially rewrites the language to conform the law to a permissible scope); blue pencil (in which the court simply crosses out the offending language, leaving the remaining language enforceable or not); and red pencil (also referred to as the “all or nothing” approach, as its name implies, requires a court to void any restriction that is overly broad, leaving nothing to enforce.)

The new statute also makes clear that it is a fundamental policy of Alabama and that it “shall govern and shall be applied instead of any foreign laws that might otherwise be applicable in those instances when the application of those foreign laws would violate a fundamental public policy expressed in” the statute.

Alaska [Trade Secrets]

On January 26, 2018, a bill (Senate Bill 164) exempting certain animal and crop records in the hands of the Department of Environmental Conservation or the Department of Natural Resources from Alaska’s Public Records Act was introduced to the Senate. On February 9, 2018, it was referred to State Affairs, Resources.

The text of the bill, which provides the details about what animal and crop records are covered and includes an exception permitting disclosure when “there is a threat to the health or safety of an animal, a crop, or the public,” is available here.

Arkansas [Noncompete]

Arkansas noncompete law was statutorily modified in 2015 by the addition of Ark. Code 4- 70-207.

Under the new law, noncompetes in Arkansas must be limited with respect to time and scope in a manner that is not greater than necessary to defend the protectable business interest of the employer (see below). The lack of a geographic limit does not render the agreement unenforceable, provided that the time and scope limits appropriately limit the restriction. Factors to consider include the nature of the employer’s business interest; the geographic scope, including whether a geographic limit is feasible; whether the restriction is limited to specific group of customers or others; and the nature of the employer’s business. In addition, a two-year restriction is presumptively reasonable unless clearly demonstrated otherwise.

Under the new law, a court must judicially reform (i.e., modify/rewrite) overly broad noncompetes. (States take one of three general approaches to overly-broad noncompetes: reformation (in which the court essentially rewrites the language to conform the law to a permissible scope); blue pencil (in which the court simply crosses out the offending language, leaving the remaining language enforceable or not); and red pencil (also referred to as the “all or nothing” approach, as its name implies, requires a court to void any restriction that is overly broad, leaving nothing to enforce.)

Legitimate business interests that may be protected include trade secrets; intellectual property; customer lists; goodwill with customers; knowledge of business practices; methods; profit margins; costs; other confidential information (that is confidential, proprietary, and increases in value from not being known by a competitor); training and education; other valuable employer data (if provided to employee and an employer would reasonably seek to protect or safeguard from a competitor in the interest of fairness).

California [Noncompetes and Trade Secrets]

Effective January 1, 2017, California has a new law purporting to prohibit the litigation outside of California of most employment-related issues affecting California-based employees. Although not specifically focused on noncompete agreements or nondisclosure agreements, the law would cover such agreements. Specifically, the new law, added as section 925 to California’s Labor Code, provides:

925. (a) An employer shall not require an employee who primarily resides and works in California, as a condition of employment, to agree to a provision that would do either of the following:

(1) Require the employee to adjudicate outside of California a claim arising in California.

(2) Deprive the employee of the substantive protection of California law with respect to a controversy arising in California.

(b) Any provision of a contract that violates subdivision (a) is voidable by the employee, and if a provision is rendered void at the request of the employee, the matter shall be adjudicated in California and California law shall govern the dispute.

(c) In addition to injunctive relief and any other remedies available, a court may award an employee who is enforcing his or her rights under this section reasonable attorney’s fees.

(d) For purposes of this section, adjudication includes litigation and arbitration.

(e) This section shall not apply to a contract with an employee who is in fact individually represented by legal counsel in negotiating the terms of an agreement to designate either the venue or forum in which a controversy arising from the employment contract may be adjudicated or the choice of law to be applied.

(f) This section shall apply to a contract entered into, modified, or extended on or after January 1, 2017.

Prior to this, physician noncompetes had been banned, although physicians could be required to pay damages for competing. The new law cuts that back by adding the following exception:

A physician may disclose his or her continuing practice of medicine and new professional contact information to any patient with a rare disorder, as defined in accordance with criteria developed by the National Organization for Rare Disorders, Inc., or a successor organization, to whom the physician was providing consultation or treatment before termination of the agreement. Neither the physician nor the physician’s employer, if any, is liable to any party to the prior agreement for damages alleged to have resulted from the disclosure or from the physician’s treatment of the patient after termination of the prior agreement.

Connecticut [Noncompetes]

On April 27, 2016, the Connecticut Senate passed a bill (S.B. No. 351) to restrict the duration, geographic reach, and scope of physician noncompetes. The vote was 35-1. The bill has progressed to the House and then, following various amendments, was passed by both the House and Senate. See Connecticut General Assembly bill tracker.

In sum, the new law – applicable only to noncompetes entered into on or after July 1, 2016 – limits physician noncompetes to one year in duration and “fifteen miles from the primary site where such physician practices,” (which is defined in the statute). In addition, any such noncompete is enforceable only if (essentially) the physician left on his/her own volition or was terminated for cause.

On March 1, 2019, the House introduced House Bill 5497 to prohibit employers in the securities from requiring employees to enter into noncompetes.

On or after October 1, 2018, no agent, broker-dealer, investment adviser or investment adviser agent, each as defined in section 36b-3 of the general statutes, may require as a condition for employment that any person enter into an agreement prohibiting such person from engaging in the same or a similar job, for another employer or as a self-employed person, for a specified period of time after termination of employment with such agent, broker-dealer, investment adviser or investment adviser agent. Any such prohibition in an agreement entered into, renewed or extended on or after October 1, 2018, shall be void.

On February 24, 2016, Florida’s governor, Rick Scott, signed dual trade secrets enhancement bills (SB 180 and SB 182) into law. The former expressly expands the definition of a trade secret under Florida trade secrets law to include financial information. The latter provides increased protection to trade secrets from disclosure under Florida’s public records act. For additional information see Gov. Scott Signs 2 Trade Secrets Bills into Law.

Since then (primarily in October and November 2017), a number of legislators have proposed various changes to the public records laws, including SB 956 / HB 459 (among other things, making contracts with government agencies, including the financial terms, public and removing “potential trade secrets” and “actual trade secrets” from the exception to the public records law), SB 958 / HB 461 (providing an exemption from disclosure under public records law for trade secrets), SB 1314 / HB 343 (providing protection for certain application information submitted by the Florida Motion Picture Capital Corporation).

Additional similar bills followed in 2018, with House Bill 7095(which “[r]emoves scheduled repeal of exemption from public records requirements for proprietary confidential business information held by local government electric utility”) and House Bill 7097(which “[r]emoves scheduled repeal of exemption from public record requirements for certain proprietary information provided by insurers to Citizens Property Insurance Corporation policyholder eligibility clearinghouse”) becoming law.

In July of 2015, a new law (H.B. No. 1090) took effect banning noncompete agreements in Hawaii took effect for workers in technology businesses. The language of the bill provides that “it shall be prohibited to include a noncompete clause or a nonsolicit clause in any employment contract relating to an employee of a technology business.” The bill further defines “technology business” as a business deriving the majority of its sales from software or information technology development.

On January 19, 2018, Senate Bill 2284 was introduced to ban noncompetes for low income workers (those earning no more than minimum wage or $15/hour). The bill was referred to the Committees on Labor and the Judiciary in January 2018, where it remains.

Idaho [Noncompetes]

On February 12, 2016, the Idaho House of Delegates Business Committee sponsored House Bill 487, that would amend Idaho noncompete law by limiting noncompetes to 18 months, where the only consideration is employment or continued employment.

The bill would also create several rebuttable presumptions: (1) a duration of 18 months or shorter is reasonable; (2) a geographic area that “is restricted to the geographic areas in which the key employee or key independent contractor provided services or had a significant presence or influence” is reasonable; (3) if the scope of the restriction is limited to “the type of employment or line of business conducted by the key employee or key independent contractor while working for the employer” it is reasonable; (4) an employee who is “among the highest paid five percent (5%) of the employer’s employees or independent contractors is a ‘key employee’ or a ‘key independent contractor'” is reasonable; and (5) an employee who is in breach is causing irreparable harm to the employer. The latter two presumptions are rebuttable only if the “employee or independent contractor . . . show[s] that it has no ability to adversely affect the employer’s legitimate business interests.”

The bill was approved by the House on March 14 and sent to the Senate.

On March 17, the bill was favorably reported out of committee and read for the second time in the Senate on March 18.

On January 26, 2017, a bill was introduced in the House (House Bill 61) to amend the new 2016 law by removing (1) the high burden to rebut a presumption that an employee who is among the highest paid five percent of the company’s employees or independent contractors is a key employee or key independent contractor and (2) the rebuttable presumption of irreparable harm when a key employee or key independent contractor is in breach of a noncompete. On January 27, 2017, the bill was reported to Ways and Means.

On February 9, 2018, a subsequent bill (Senate Bill 1287) to remove just the rebuttable presumption of irreparable harm when a key employee or key independent contractor is in breach of a noncompete was introduced.

On January 11, 2018, House Bill 1235 was introduced to prohibit hospitals from imposing or enforcing noncompetes against its employee physicians. It was immediately referred to the Committee on Employment, Labor and Pensions.

Be it enacted by the People of the State of Maine as follows: CONCEPT DRAFT

SUMMARY

This bill is a concept draft pursuant to Joint Rule 208.

This bill proposes to regulate the use of so-called noncompete agreements, which are contracts entered into by an employee prohibiting the employee from working in the same or a similar profession within a time certain after leaving employment with the employer and within a specified geographical area. This bill would restrict the use of noncompete agreements by public and private employers by:

1. Prohibiting their use for low-wage employees;

2. Requiring employers to include in any advertisement for a job a statement that the person hired will be required to sign a noncompete agreement;

3. Requiring employers to notify prospective employees of the noncompete requirement and provide a copy of the noncompete agreement before extending a job offer;

4. Requiring employers to provide additional compensation to those employees who agree to sign a noncompete agreement;

5. Restricting the use of noncompete agreements to those situations when they are necessary to protect trade secrets or confidential information held by that employer;

6. Limiting the duration of noncompete agreements so that they would have to be renegotiated and agreed to after a certain period of time; and

7. Allowing an employee harmed by the unlawful use of a noncompete agreement to bring suit against the employer and, if the employee prevails, be awarded damages, attorney’s fees and court costs.

This amendment replaces the bill, which is a concept draft, and prohibits an employer from requiring or entering into a so-called noncompete agreement with an employee earning wages that are at or below 300% of the federal poverty level. A noncompete agreement is defined as a contract or contract provision that prohibits an employee or prospective employee from working in the same or similar profession or in a specified geographic area for a certain period of time following termination of employment. If an employer requires a noncompete agreement for a position of employment, the employer must disclose that requirement in any advertisement for that position, and an employer must provide an employee or prospective employee with a copy of a noncompete agreement at least 3 business days before requiring that employee or prospective employee to sign the agreement. The terms of a noncompete agreement, except for 3 noncompete agreement with a physician, are not in effect until after an employee ha 4 been employed with the employer for at least one year or a period of 6 months has passed, whichever is later. An employer that violates this law commits a civil violation for which a fine of not less than $5,000 may be adjudged. The Department of Labor is responsible for enforcement of the law. The amendment also adds an appropriations and allocations.

1. An exemption for low income workers. The idea is to ban noncompetes for people who rarely, if ever, should be subject to them – people like sandwich shop workers, landscapers, college interns, and the like.

2. A statutory maximum duration of one year.

3. A requirement that employers provide advance notice to employees who will be asked to sign a noncompete together with a stated right to counsel.

The details were not fleshed out at the time, but each had been floated before in certain of the alternative, compromise bills that Representative Lori Ehrlich and Senator Will Brownsberger have filed over the last seven-plus years, since this movement started. (I drafted Representative Ehrlich’s first noncompete bill in December 2008, which she unknowingly filed virtually simultaneously with Senator (then Representative) Brownsberger’s filing of a proposed ban. By the spring of 2009, they began working together on a compromise, and I became the lead draftsperson for all of the various bills that followed.)

For additional background, the following bills were filed in the legislature earlier in the 2015-2016 session (and remain extant): H.1701 by Representative Lori Ehrlich (proposing a ban, and expressly permitting the courts to issue injunctive relief to remedy a violation of other restrictive covenants, which has come to be known as a “springing noncompete”); a similarbill in the senate (S.957) by Senator Will Brownsberger (albeit the explicit reference to the concept of a “springing noncompete”); H.1761 by Representative Angelo Puopolo (proposing a ban on employee noncompetes); H.1195 by Representative Garrett Bradley; H.1719 by Representative Sheila Harrington (proposing a ban on employee noncompetes); and S.169 by Senator Jason Lewis (proposing a ban on employee noncompetes). For additional information about these bills see Massachusetts Bills to Ban Noncompetes and Adopt UTSA in the New Legislative Session (2015-2016). (Please note that the numbering available at the time has since changed, as the bills were given official bill numbers.) For additional information about earlier alternative approaches see here and here for some of the earlier Ehrlich and Brownsberger bills.

None of the bills passed, although the legislature was as close to passing noncompete reform as it has come since it starting looking at the issue in 2009.

On the trade secrets side, the following bills were filed in the legislature earlier in the 2015-2016 session proposing the adoption of some version of the Uniform Trade Secrets Act: H.32 on behalf of the Commission on Uniform State Laws by Steve Chow (with whom I worked to address several concerns I had with the prior version); H.1195 by Representative Garrett Bradley; H.1408 by Representatives Bradley Jones; and S.169 by Senator Jason Lewis. With the exception of H.32, the other bills are largely refiled versions of earlier bills.

Like many noncompete reform efforts, none of the bills passed, although the legislature was as close to passing trade secrets reform as it has come since it starting considering adopting a version of the Uniform Trade Secrets Act decades ago.

In February 2016, Republican (yes, Republican) State Representative Peter Lucio of Michigan introduced a bill that would require that employers who have new employees sign noncompetes must provide advance notice of the terms of the noncompete to the prospective employee. It would also prohibit the use of noncompete for low-wage employees. Neither of these approaches is new; nor should they be particularly controversial (especially the notice requirement). For example, Oregon’s noncompete statute employs both of these concepts, New Hampshire’s 2012 noncompete statute requires advance notice, and some of the earlier Massachusetts noncompete law overall bills included these concepts.

However, the bill, which ultimately went nowhere, does include some remedies for an employee (attorneys’ fees and lost income resulting from enforcement or threatened enforcement of the noncompete) if the noncompete is in determined to be unenforceable or reformed to make it enforceable.

Prohibits the use of noncompetes with “low-wage employees,” defined as someone who earns (excluding overtime) less than the greater of $15/hour, 150% of Michigan’s minimum wage, or $31,200, adjusted annually for inflation;

Invalidates efforts to avoid the law (choice of law and waivers);

Authorizes the attorney general to enforce through fines up to $5,000;

Places burden on the employer to prove that “the employee was not a low-wage employee and that the duration, geographical area, and type of employment or line of business are reasonable”;

Requires a court to award (1) costs (including attorneys’ fees) and (2) all lost income (resulting from actual or threatened enforcement of the noncompete) to an employee if the agreement was void or was limited by the court.

On December 7, 2015, Representative Keith Frederick filed House Bill No. 1660 to ban noncompetes between physicians and (as amended) “private, nonprofit health care entit[ies] or governmental health care entit[ies].” (Originally, the bill covered only agreements with nonprofit hospitals.) As of March 1, 2016, a public hearing had been completed, after which the bill sat with the Health and Mental Health Policy Committee. The bill ultimately died.

On January 5, 2017, a new bill to ban noncompetes, House Bill No. 479, was introduced. The bill was voted down on February 8, 2017.

On February 13, 2017, the Nevada Assembly (Assemblyman Carrillo) introducedAssembly Bill No. 149. The bill restricted noncompetes to 3 months and made it a misdemeanor (and established a $5,000 fine per violation) to negotiate, execute, or enforce a noncompete that is longer than 3 months. The bill died on April 25, 2017.

On June 3, 2017, Nevada enacted a new law that made significant changes to Nevada noncompete law. Contrary to the two developments above, the new law made enforcement of noncompetes easier in some ways and in some ways arguably harder. Specifically, the new law provides in relevant part as follows:

1. A noncompetition covenant is void and unenforceable unless the noncompetition covenant:

(a) Is supported by valuable consideration;

(b) Does not impose any restraint that is greater than is required for the protection of the employer for whose benefit the restraint is imposed;

(c) Does not impose any undue hardship on the employee; and

(d) Imposes restrictions that are appropriate in relation to the valuable consideration supporting the noncompetition covenant.

2. A noncompetition covenant may not restrict a former employee of an employer from providing service to a former customer or client if:

(a) The former employee did not solicit the former customer or client;

(b) The customer or client voluntarily chose to leave and seek services from the former employee; and

(c) The former employee is otherwise complying with the limitations in the covenant as to time, geographical area and scope of activity to be restrained, other than any limitation on providing services to a former customer or client who seeks the services of the former employee without any contact instigated by the former employee. Any provision in a noncompetition covenant which violates the provisions of this subsection is void and unenforceable.

3. An employer in this State who negotiates, executes or attempts to enforce a noncompetition covenant that is void and unenforceable under this section does not violate the provisions of NRS 613.200.

4. If the termination of the employment of an employee is the result of a reduction of force, reorganization or similar restructuring of the employer, a noncompetition covenant is only enforceable during the period in which the employer is paying the employee’s salary, benefits or equivalent compensation, including, without limitation, severance pay.

5. If an employer brings an action to enforce a noncompetition covenant and the court finds the covenant is supported by valuable consideration but contains limitations as to time, geographical area or scope of activity to be restrained that are not reasonable, impose a greater restraint than is necessary for the protection of the employer for whose benefit the restraint is imposed and impose undue hardship on the employee, the court shall revise the covenant to the extent necessary and enforce the covenant as revised. Such revisions must cause the limitations contained in the covenant as to time, geographical area and scope of activity to be restrained to be reasonable and to impose a restraint that is not greater than is necessary for the protection of the employer for whose benefit the restraint is imposed.

6. As used in this section:

(a) “Employer” means every person having control or custody of any employment, place of employment or any employee.

(b) “Noncompetition covenant” means an agreement between an employer and employee which, upon termination of the employment of the employee, prohibits the employee from pursuing a similar vocation in competition with or becoming employed by a competitor of the employer.

New Hampshire [Noncompetes]

On August 5, 2016, Senate Bill 417 became effective and now prohibits physician noncompetes in New Hampshire.

On December 20, 2017, New Hampshire introduced Senate Bill 423, “An Act relative to noncompete clauses for low-wage employees.” The bill, if enacted, would ban the use of noncompetition agreements for “low-wage employees,” who are defined as “an employee who earns the greater of: (1) The hourly rate equal to the minimum wage required by the applicable federal minimum wage law; or (2) $15.00 per hour.” The bill has been referred to the Commerce Committee.

On November 9, 2017, Senate Bill 3518 was introduced to the New Jersey Senate by Senator Robert Gordon.

The bill largely tracks the concepts – and, in some instances, the language – of the Massachusetts bills that I drafted for Representative Ehrlich and Senator Brownsberger. That said, it certainly does not fully track the Massachusetts noncompete bills, and some of the differences can have significant consequences.

On April 7, 2017, New Mexico modified its medical noncompete ban to expand the scope of covered professionals (to include certified nurse practitioners and certified nurse-midwives). Particularly noteworthy, the law now also precludes enforcement of contractual choice of law and venue provisions that would apply the law of, or require litigation in, another state.

The bill clarifies the law of non-compete agreements which has become confusing in light of the Court of Appeals decision in BDO Seidman v. Hirshberg, 93 N.Y.2d 382 (1999). That decision did not purport to replace prior law but to address a situation not clear in prior law. The decision utilizes a balancing test in which the employer’s interest in enforcing the covenant is balanced against the employee’s interest in earning his or her livelihood. Unfortunately, some Courts have interpreted the balancing test as applying in all cases, rather than applying only to employees who were not within categories long considered to be exempt from such restrictive covenants. The bill restores the law so that lower level employees and independent contractors cannot be subjected to restrictive covenants.

The bill also provided the following summary:

The bill establishes clear categories in which restrictive covenants are not enforceable:

1) An employee terminated for reasons other than misconduct. The Court of Appeals has clearly held that the consideration for a non-compete is the promise of future employment not past services rendered. Hence, when an employee is terminated, and future employment is no longer offered, a non-compete cannot be enforced. Morris v. Schroder Capital Mgmt. Int’l, 7 N.Y.3d 616, 621 (2006).

2) Employees who are not unique. A unique employee is one who possesses trade secrets or material that is akin to a trade secret. Cool Insuring Agency, Inc. v. Rogers, 125 A.D.2d 758 (3d Dep’t 1986).

3) Learned professionals such as physicians have always been permitted to enforce non-compete agreements against departing physicians.

4) Noncompetes against attorneys are unenforceable due to the client’s right to counsel of his or her own choosing.

5) Covenants that are unreasonable in geographic extent or length of years. The bill relies on existing case law to define what is meant by “unique employee,” “trade secret,” and geographical or durational reasonableness.

The bill also provided that an noncompetes can be used for employees who purchase, if it is a condition of allowing them to become an owner of a business, or sell a share in the business. The business has an interest in preventing the purchaser or the seller from competing and undermining the future viability of the business.

The bills were assigned the the Senate Labor Committee and Assembly Law Committee, respectively, but ultimately died.

On January 10, 2017, Senator Avella introduced Senate Bill 1589, which would prohibit noncompetes – and nonsolicitation agreements – if an employee has been terminated “for reasons other than misconduct” or if the employee (or independent contractor) who is bound “(I) is not unique; (II) does not posses trade secrets of the business or material that is akin to a trade secret; (III) has not purchased or sold any portion of the business; and (IV) is not a learned professional” (although lawyers are excluded).

prohibit the use of noncompetes who does not meet minimum income requirements (the greater of $15/hour or the applicable minimum wage, adjusted for inflation);

require employers who employ “low-wage employees” to “post a notice of the provisions of this article in a conspicuous place”;

require (when a noncompete will be used for a non-low wage employee) the employer to “disclose” to the employee “prior to the employment of such employee and at the beginning of the process for hiring such employee” that the employee will be required to sign a noncompete; and

provide for enforcement by the state, including through the use of fines.

Presumably because the bills were derived from the federal MOVE Act, they apply only to noncompetes used in commerce – as defined in the Fair Labor Standards Act of 1938, 29 U.S.C. § 203. While a federal act must necessarily be limited in scope, there is no apparent reason for the NY state bills to contain the same restriction – even if, as a practical matter, the restriction is unlikely to create any meaningful exemption.

Both bills were referred to the Labor Committee. The Senate bill progressed and, on June 21, was referred to the Rules Committee, where it remains. See here for the Senate version and here for the Assembly version.

On July 20, 2017, the New York City Council introduced a bill (Int. No. 1663) that was, on the same day, referred to the Committee on Civil Service and Labor, where it remains. The bill prohibits noncompetes for “clerical and other worker as defined in subdivision 7 of section 190 of the labor law,” which defines such persons as including “all employees [who are not “manual workers,” “railroad workers,” or “commission salesman” (all separately defined)], except any person employed in a bona fide executive, administrative or professional capacity whose earnings are in excess of nine hundred dollars a week.” At the end of the session on December 31, 2017, the bill was filed.

On January 6, 2017, a bill (S 1204) was introduced providing for a procedural mechanism for dealing with information filed under the public officers law (i.e., a public records act) that a public utility claims constitutes a trade secret. The bill creates a presumption that any information filed by a public utility is not a trade secret and can be disclosed, and places on public utilities the burden of clearly identifying any information that it claims is a trade secret and should be exempt from disclosure. That will was committed to the Committee on Investigations and Government Operations.

On February 24, 2017, a bill to adopt the Uniform Trade Secrets Act was introduced in the Senate (S 4688) and committed to the Committee on Judiciary. An identical bill (A 6419) was introduced in the Assembly on March 7, and immediately committed to the Committee on Judiciary. Both bills essentially track the language of the UTSA.

Also on March 2, 2017, the Oregon Senate introduced a bill (Senate Bill 949) to ban noncompetes, no-raid agreements (i.e., employee nonsolicits), and customer nonsolicitation agreements for home care workers (as defined in ORS 410.600*). The bill was signed into law on June 14, 2017, and becomes effective on January 1, 2018.

Prior to this initiative, a bill had been introduced to ban physician noncompetes (HB 336), though that bill ultimately died in committee.

On March 10, 2017, a new bill (HB 788) was introduced and referred to the Professional Licensure Committee. The bill prohibits employee noncompetes for “Health care practitioners,” defined (in Pensylvannia’s Health Care Facilities Act) as “[a]n individual who is authorized to practice some component of the healing arts by a license, permit, certificate or registration issued by a Commonwealth licensing agency or board.”

The bill also permits departing healthcare providers to notify their patients of the move, their new contact information and employer, and any change in the scope of their practice – but nothing more. To enable this, the bill would require the employer to “make available to the separating health care practitioner all contact information and existing electronic medical records of the prior patients of the health care practitioner.”

If passed, this last aspect of the bill will certainly open the door to arguments about the trade secret status of such information and likely create questions about compliance with HIPAA.

On June 21, 2017, a bill (HB 1590, the “Freedom to Work Act“) to ban noncompetes for low-wage employees was introduced and referred to the Committee on Labor and Industry. A “low-wage employee” is defined as “[a]n employee who earns: (1) an hourly rate equal to the minimum wage required by the applicable Federal, State or local minimum wage law; or (2) a wage 30% or more below the Pennsylvania median wage for all workers as calculated by the United States Department of Labor or $20 or less per hour, whichever is greater.”

The first violation by an employer of this prohibition subjects the employer to a fine of up to $5,000. The fine increases to up to $10,000 for any subsequent violations.

As of November 27, some Pennsylvania legislators have moved to the most extreme position: banning employee noncompetes in their entirety. See House Bill 1938.

Rhode Island [Noncompetes]

Effective July 12, 2016, Rhode Island passed a law (R.I. Gen. Laws § 5-37-33) invalidating physician noncompetes, except (as are commonly permitted) for those agreements arising from the sale of a practice (provided that they are no longer than five years).

The Act defines “clear and convincing” (which is the standard for showing willfulness under the Texas Uniform Trade Secrets Act (UTSA)) and what type of conduct constitutes “willful and malicious misappropriation.” The Act also harmonizes Texas’ UTSA with the Defend Trade Secrets Act (DTSA) language, including adding a definition for who is an “owner” of a trade secret.

Perhaps most significantly as it concerns the DTSA, although modifying the “threatened” misappropriation section, the Act does not track the language of the DTSA that some have argued forecloses the inevitable disclosure doctrine. Rather, the Act merely adds the following underlined language: “Actual or threatened misappropriation may be enjoined if the order does not prohibit a person from using general knowledge, skill, and experience that person acquired during employment.”

In addition, the Act codifies the presumption of a party’s right to participate in the proceedings, subject to a balancing test designed to balance that right against the right of the trade secret owner to protect the secrecy of the trade secret.

Under the Act, all new noncompete agreements executed on or after May 10, 2016, are restricted to one year; any agreement that violates this limit is void. Section 34-51-201.

The Act does not operate retroactively (section 34-51-201), nor does it apply to nonsolicitation agreements or nondisclosure agreements (section 34-51-102 (1)(a)). It also excepts from its purview “reasonable severance agreement[s] mutually and freely agreed upon in good faith at or after the time of termination that includes a [noncompete]” (section 34-51-202(1)) and noncompetes “arising out of the sale of a business, if the individual subject to the restrictive covenant receives value related to the sale of the business” (section 34-51-202(2)).

The Act also provides that the employer is liable for the employee’s attorneys’ fees, costs, and damages if “it is determined that the post-employment restrictive covenant is unenforceable . . . .” Section 34-51-301.

On March 8, as expected, the Utah Senate took up the noncompete bill. However, rather than approve a ban on employee noncompetes (as approved by the House), the Utah Senate approved a bill that would limit the maximum duration of an employee noncompete to one year and, for employers with 20 or more employees, impose legal fees and damages on an employer who sought to enforce an unenforceable noncompete.

On March 9, the Utah Senate made some amendments to the bill and sent the amended version to the House. The amended bill maintains those same provisions, but adds several clarifications. First, the bill now makes clear that the law will apply only to employee noncompetition agreements entered on or after May 10, 2016. Second, it now makes clear that certain types of restrictive covenants agreements are not intended to covered; specifically, nonsolicitation agreements (though it is unclear whether this includes no-raid agreements, sometimes included within the term “nonsolicitation agreement”), nondisclosure (or confidentiality) agreements; noncompetes arising in the context of a (reasonable, good faith) severance agreement; and noncompetes arising in the context of a sale of business (where the individual receives value related to the sale (again, potentially a bit vague)) are all outside the scope of the bill.

The law’s passage was quickly followed by subsequent efforts to modify the law further.

On December 21, 2016, House Bill 81 was introduced to require additional consideration (beyond continued employment) for noncompetes entered into after the commencement of employment and to preclude enforcement of noncompetes against employees who were terminated without cause. It also would have limited the time to commence an action for breach to the date that the noncompete restriction expired. The bill died on March 9, 2017.

On January 25, 2018,Representative Mark Schultz introduced a new noncompete bill (H.B. 241) designed to prohibit noncompetes in the news media industry.

Specifically, the bill prohibited noncompetes for “broadcasting employees,” defined as “an employee of a broadcasting company,” which is itself defined as follows:

(2) “Broadcasting company” means a person engaged in the business of: (a) distributing or transmitting electronic or electromagnetic signals to the general public using one or more of the following: (i) television; (ii) cable; or (iii) radio; or (b) preparing, developing, or creating one or more programs or messages for distribution or transmission by means described in Subsection (2)(a).

However, the bill exempts from the ban broadcasting employees who are “compensated on a salary basis . . . at a rate equal to or greater than the greater of: (a) $913 per week, or an equivalent amount if calculated for a period longer than one week; or (b) the rate at which an employee qualifies as exempt under the Fair Labor Standards Act, 29 U.S.C. Sec. 213(a) on a salary basis as defined in 29 C.F.R. Part 541.”

For exempt broadcasting employees, the bill essentially permits noncompetition restrictions contained in employment contracts for a term (up to four years). The restrictions apply only during the term of the contract, with the exception that if the employee is terminated for cause or breaches the contract, the noncompete will continue for the shorter of the end of the contract term or one year after termination of the employment.

As more people flowed from to Washington from California than anywhere else in the country (thank you William Molinski and Andrew Arranger of Orrik), Washington introduced three bills relating to noncompetes this past legislative session (ending 2016: a bill to ban noncompetes; a bill to ban the use of noncompetes for low-income employees and persons involuntarily terminated without cause; and a bill that would ban the use of noncompetes for physicians. None passed.

HB 1157, which was originally introduced in 2015 and reintroduced in the 2016 legislative regular session, would ban noncompete agreements for low income workers (someone entitled to overtime compensation or earning $39,000 or less per year), create a presumption that a six month (or longer) restriction is unreasonable (and unenforceable), and prohibit enforcement against an employee who is terminated without just cause or laid off (unless the noncompete is part of a severance agreement). See full text.

HB 1173, which was originally introduced in 2015 and reintroduced in the 2016 legislative regular session, would ban noncompetes for physicians (including separately banning them for physicians practicing osteopathic medicine). See full text.

HB 1926, which was originally introduced in 2015 and reintroduced in the 2016 legislative regular session, would adopt a ban on all employee noncompete agreements. See full text.

HB 2406, introduced in 2016, would ban noncompetition agreements for certain employees, based on industry: hair designers, cosmetologists, barbers, manicurists, estheticians, drywall applicators, musicians, fast-food workers. In addition, pursuant to a proposed amendment, the bill would allow attorneys’ fees to be recovered by a prevailing party – including where the restriction is reformed by the court (even if the reformed agreement is enforced against the employee).

HB 2931, introduced in 2016, would ban noncompetition agreements for certain employees (and others), based on category: temporary or seasonal employees; employees terminal without just cause or laid off by the employer; and independent contractors. Further, the bill would preclude the reformation of unreasonable noncompete agreements and create a rebuttable presumption that noncompetes longer than one year and noncompetes for employees who are not “executive employee[s]” (defined in the bill) are unreasonable. A proposed amendment to the bill removed these presumptions.

None of the bills survived past March 2016.

In 2017 continuing into 2018, several noncompete bills were introduced in the Senate and House.

In early 2017, SB 5756 was introduced to ban the use of noncompetes for anyone earning less than $55,000 per year (adjusted annually for inflation) and provides for damages and attorneys fees if an employer seeks to enforce a void agreement. In February 2017, the bill was referred to the Senate Committee on Commerce, Labor & Sports and, on February 15, the Committee held a public hearing on the bill. On January 8, 2018, the bill was reintroduced and referred to Labor & Commerce.

The bill codifies certain aspects of Washington state law, and adds some additional requirements. The key aspects are:

Like all states, unreasonable noncompetes are unenforceable.

Like most states, the court is permitted to reform (i.e., fix) agreements that are unreasonable.

Notice of the requirement of a noncompete must be provided, at the latest, at acceptance of the offer of employment.

Noncompetes required after employment commences must be supported by consideration (continued employment is not sufficient).

Employers who require an employee to sign a noncompete that the employer knows is unenforceable will be subject to damages (including automatic damages of $5,000) and attorneys’ fees.

If passed, the bill will apply to existing noncompetes (not just noncompetes entered into after its effective date).

The amended version reflected that there was no appetite for some of the aspects of the original version that would have imposed greater restrictions on the use of noncompetes

On March 8, 2017, the amended bill passed the House 97-0. SeeScaled-back bill aimed at providing clarity on non-compete deals passes Washington House 97-0. On March 23, 2017, the bill was referred to the Senate Committee on Commerce, Labor & Sports, where the majority recommended approval. On March 29, it was referred to the Senate Rules Committee and on April 23, it was returned to the House Rules Committee for third reading, where it remains. See Bill Information. On January 8, 2018, it was reintroduced, the Rules Committee was relieved of further consideration, and it was referred to Labor & Workplace Standards.

The new employer must disclose the terms of the agreement in writing to the prospective employee no later than the time of the acceptance of the offer of employment.

If the agreement is entered into after the commencement of employment, the employer must provide independent consideration for the agreement.

Noncompetes are not enforceable against anyone earning (at the time of signing) less than 5x the annual weekly average in Washington or who is terminated during a probationary period or without just cause.

Rebuttable presumption of unenforceability if the restriction lasts more than one year.

The employee must be paid full wages during the term of the restriction.

Enforcement of a void or overly broad agreement constitutes an unfair or deceptive business practice under chapter 19.86 RCW.

On January 23, 2018, HB 2903 was referred to Labor & Workplace Standards. A public hearing was held on January 25. On February 1, it passed by majority vote. On February 2, it was referred to Rules Committee, which was relieved of further consideration on February 9, and the bill was placed on second reading.

Senate Bill 6522: SB 6522 (in its substituted form) is a somewhat scaled down version or HB 2903 (requiring 3x annual weekly average earnings (rather than 5x) and permitting the enforcement of a noncompete in the context of a reduction in force (RIF) if the employee is paid full wages during the restricted period. It was introduced on January 22, 2018 and referred to Labor & Commerce, where the committee conducted a public hearing on January 25. On February 1, it passed by majority vote. On February 2, it was referred to the Ways & Means Committee.

Senate Bill 6526: SB 6526 (in its substituted form) is a ban on noncompetes for hourly workers. It was introduced on January 22, 2018 and referred to Labor & Commerce, where the committee conducted a public hearing on January 25. On February 1, it passed by majority vote. On February 2, it was passed to the Rules Committee and placed on second reading on February 8.

Wyoming [Noncompetes]

On February 13, 2018, the House introduced H.B. No. 0163, which currently sits in the Appropriations Committee.

West Virginia [Noncompetes]

On February 22, 2017, the Senate introduced a bill (Senate Bill 402) to ban noncompetes in certain physician contracts.

The bill was referred to the Committee on Health and Human Services, amended, and then to the Committee on the Judiciary.

Wisconsin, which has historically been extremely hostile to noncompete agreements, has pending a bill that would make enforcement of noncompetes significantly easier, adding presumptions of reasonableness (and what is unreasonable) and bringing Wisconsin in line with the majority of states by permitting reformation (i.e., judicial modification) of overly broad noncompetes. (Indeed, if adopted, Wisconsin would seemly be joining Arkansas, Texas, and Florida in mandating judicial modification.) The bill failed to pass in April 2016.

International [Trade Secrets] (Note: These are Not Comprehensive and Updated Only Occasionally)

Although focused on enhancing trade among Pacific Rim countries, the TPP contains some potential implications for trade secrets (as well as trademarks, copyrights, and patents) in the United States. Specifically, Article 18.78 (the only place in the entire 30-chapter, 2,000-page agreement that even touches on trade secrets43) addresses the protections for trade secrets that each country must have in place and provides, in full, as follows:

Article 18.78: Trade Secrets

1. In the course of ensuring effective protection against unfair competition as provided in Article 10bis of the Paris Convention, each Party shall ensure that persons have the legal means to prevent trade secrets lawfully in their control from being disclosed to, acquired by, or used by others (including state-owned enterprises) without their consent in a manner contrary to honest commercial practices. As used in this Chapter, trade secrets encompass, at a minimum, undisclosed information as provided for in Article 39.2 of the TRIPS Agreement.

2. Subject to paragraph 3, each Party shall provide for criminal procedures and penalties for one or more of the following:

(a) the unauthorised and wilful access to a trade secret held in a computer system;

(b) the unauthorised and wilful misappropriation of a trade secret, including by means of a computer system; or

(c) the fraudulent disclosure, or alternatively, the unauthorised and wilful disclosure, of a trade secret, including by means of a computer system.

3. With respect to the relevant acts referred to in paragraph 2, a Party may, as appropriate, limit the availability of its criminal procedures, or limit the level of penalties available, to one or more of the following cases in which:

(a) the acts are for the purposes of commercial advantage or financial gain;

(b) the acts are related to a product or service in national or international commerce;

(c) the acts are intended to injure the owner of such trade secret;

(d) the acts are directed by or for the benefit of or in association with a foreign economic entity; or

(e) the acts are detrimental to a Party’s economic interests, international relations, or national defence or national security.

The TPP must still pass Congress before it takes effect. For additional information and links, see my materials for the Boston Bar Association Year in Review (2015) Trade Secrets(pages 20-22).